Election result will compound South Africa’s economic woes

South Africa’s 2016 municipal elections were held against the backdrop of challenging economic conditions in the country.

This has amplified the interconnections between politics and economic fortunes.

The latest forecast from the South African Reserve Bank has the country recording zero percent growth in 2016 and only 1.5% in 2017 and 1.7% in 2018. Economic growth has been depressed for a while, with South Africa struggling to bounce back from the 2007/08 financial crisis-induced slowdown.

As a result of low economic growth and subdued growth in tax revenue, South Africa’s public purse has come under pressure. At the same time the country faces the danger of a credit risk downgrade by international credit rating agencies, which would have been watching these elections closely.

Economic growth is imperative for South Africa. It will help alleviate the country’s unemployment problem and will increase tax revenue for the government.

Its been known for a while that major policy shifts are required to improve the country’s economic fortunes to foster growth. It is problematic that the ruling African National Congress (ANC) did not give any indication of new policy initiatives to achieve sustained higher economic growth in the election. The theme during the election campaign was “more of the same”, rather than visionary leadership for a new growth trajectory.

There’s an additional problem. The election results show a clear swing away from the ANC and its ruling alliance with trade union federation COSATU and the South African Communist Party. When ruling parties lose support in an election they normally adjust policies in the direction of the party that has gained ground at their expense. But this is not an option for the ANC because it lost support both to its left – to the Economic Freedom Fighters (EFF) – and to its right – to the Democratic Alliance (DA).

This leaves no doubt that South Africa faces serious economic challenges. There are no longer easy choices available and there is no longer time to consider options. It is time for big decisions on matters such as poverty alleviation and state-owned enterprises, and a strategy to avert a credit risk downgrade to junk status.

The big decisions

The futures of South Africa’s 717 state-owned enterprises need to be considered within fiscal constraints. Some are no longer financially viable and should simply be given away. South African Airways, for example, is in deep financial trouble. The national carrier, like many other state-owned enterprises, will continue to cost tax payers a lot of money through bailouts. To date the South African government (therefore South African taxpayers) has provided South African Airways financial guarantees totalling more than R14 billion (about US$1 billion).

Giving away state-owned enterprises will alleviate the need for the government to provide these institutions with financial guarantees and will help to create fiscal space for other initiatives.

At the same time, South Africa suffers “bureaucratic oversupply”, which is also proving hugely expensive to the taxpayer. Less red tape would help create fiscal space and stimulate economic activity. Rules and regulations to ease red tape must be reconsidered. Two key examples come to mind:

The area of major concern is government departments not paying small businesses within a reasonable time for goods delivered. This puts cash flow of small businesses under considerable pressure, specifically as they have to pay value-added tax on money not yet received from government departments.

The cost of travel in and out of the country is another area of concern. An example is the requirements about unabridged birth certificates for children travelling in and out of South Africa without anybody ever asking questions about the integrity of such certificates.

A divided and fractious party

The ANC is a deeply divided party. This has economic implications. Expectations of visionary leadership or any drastic decisions to change course or economic policy are unrealistic.

Real “opposition politics” in South Africa has been between the different factions in the ANC, rather than between the ANC and other political parties. A faction, led by President Jacob Zuma, wrestled control out of the hands of then President Thabo Mbeki in 2007. Indeed, after the party’s conference in Polokwane, the country saw a change of “government”, albeit in terms of a party with the same name.

It is nine years later and the ANC finds itself in a similar position. Now Zuma is in control of the party and the state, with the ANC still starkly divided into two major factions. The way forward is for anti-Zuma “opposition” within the ruling party to reorganise effectively within the ANC and to get back control from Zuma and his camp. Following the drop in support for the ANC, expect to see such developments in months to come as the ruling party moves closer to its 2017 national election conference. New party leaders will be elected then to lead the ANC into the national elections two years later.

This does mean that South Africa will go into “election mode” immediately after this 2016 municipal election. On the one hand, there will be an internal struggle for control within the ANC as 2017 draws closer. On the other hand, the ANC will try and reaffirm its grip on power in the period running up to the 2019 national election. Three more years of “election mode”, which comes with policy uncertainty, will unfortunately hamper economic growth in South Africa.

Planning and implementation of policy will also be hampered by the fact that a number of metropolitan municipalities will now have coalition governments. It will take time to assess whether stable coalitions can be formed and whether such coalitions can indeed effectively govern at municipal level.

It is in the interest of all South Africans that stable coalitions should be formed and should govern effectively, as this is a precondition for service delivery. Hopefully that will spill over to the national level, where service delivery is sorely lacking.

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